Exploring voluntary sign-up to Making Tax Digital for VAT

Ipsos MORI was commissioned by HM Revenue and Customs (HMRC) to undertake qualitative research to understand the motivations and experiences of businesses that voluntarily signed up to Making Tax Digital (MTD) for VAT.

The author(s)

  • Katrina Leary Ipsos Public Affairs, UK
  • Kelly Maguire Public Affairs
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What is MTD for VAT?

Making Tax Digital (MTD) is the first phase of a modern, digital tax service. It allows businesses more time to maximise business opportunities and helps to foster good financial planning. This integrated approach to business administration and tax means that many of the existing paper-based or manual processes are eliminated, and time spent on administration is reduced.

MTD is in the initial phase of roll-out for VAT. VAT-registered businesses with a taxable turnover above the VAT registration threshold (currently £85,000) have been required to operate MTD since April 2019 and over 1.4 million businesses have started using MTD, submitting over 7 million VAT returns.

An estimated 27% of smaller VAT-registered businesses, who are not yet required to operate MTD, have chosen to do so voluntarily. From April 2022, all VAT-registered businesses (regardless of their turnover) will be required to operate MTD rules. HM Revenue and Customs (HMRC) commissioned this study to explore why these businesses have made this choice, to help encourage more businesses to sign up.

Ipsos MORI conducted 38 in-depth interviews with businesses who had signed up to MTD for VAT voluntarily. The interviews were conducted via phone or online and took place in August and September 2020.

Findings

  • Prior to MTD, businesses used a range of different record keeping systems. Regardless of the systems they had in place, businesses generally found preparing and submitting their VAT returns straightforward.
  • The primary reasons businesses had for signing up to MTD voluntarily were because they expected to exceed the VAT threshold in the near future or because they presumed they would have to move to MTD eventually, so thought it was better to do it sooner rather than later.
  • Most were aware that businesses in their position were not required to use MTD for VAT, until their turnover exceeded £85,000. Some were not aware, however, and had either (incorrectly) assumed that the ‘voluntary’ element was being VAT-registered, or they had received incorrect advice from an agent, or online.
  • Signing up to MTD for VAT was straightforward for those already using software. Those using software for the first time found the range of choice overwhelming, and found it difficult to know what would best suit their business.
  • Most participants did not experience any impact – positive or negative – from moving to MTD. They were either new businesses who had signed up for MTD from the outset, or they had not needed to change their record keeping practices as a result of the transition.
  • Those who fully understood and engaged with the principles of MTD (and real-time record keeping) noted the benefits of monitoring their finances in real-time, automation, and additional reassurance they were getting their VAT returns correct first time.
  • Those who had not understood or engaged with the policy reported negative impacts, including resenting the cost of the software and additional time spent changing their record keeping systems. Some businesses kept their pre-MTD spreadsheets alongside their bridging or full software. However, businesses generally thought that MTD worked well, or that it had no material impact on their day-to-day financial management practices.

 

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The author(s)

  • Katrina Leary Ipsos Public Affairs, UK
  • Kelly Maguire Public Affairs

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